Mergers slow in 1Q of 2002

How long will U.S. dealmakers stand on the sidelines? That's the question Mergerstat LP is asking after the first quarter of 2002, in which consumers, investors and businesses expressed growing confidence in the U.S. economy, but dealmakers did not.

Merger and acquisition activity, a

key indicator of dealmaker confidence, appears to be headed for another slow quarter. In the first three months of 2002 (including transaction data up to March 25), Mergerstat reported that dealmakers are likely to report about 1,658 transactions, compared to 1,840 in the fourth quarter of 2001 and 2,449 in the first quarter of 2001.

The price of deals, also appears to have shriveled. So far, dealmakers have disclosed just $73.9 billion worth of transactions in the first quarter, compared to $135.4 billion in the fourth quarter of last year and $157.8 billion in the first quarter of 2001.

A slowdown in mega-deals, valued at $1 billion or more, is the primary cause. Only 13 mega-deals, worth a combined $33.9 billion, have been announced in 2002, compared to 25 in the fourth quarter of 2001, which were worth a combined $83.2 billion, and 33 in the first quarter of 2001, which were worth a combined $94.9 billion.

The top deals this year have focused on AOL Time Warner, which made a $6.5 billion agreement to acquire the 49 percent stake it doesn't already own in AOL Europe from Germany's Bertelsmann (Internet); Northrop Grumman, which launched a hostile offer to buy TRW for $5.9 billion in stock (defense); Simon Property Group and Westfield America Trust, which negotiated a $5.3 billion cash deal for The Netherland's Rodamco North America (real estate); JP Morgan, which sought to purchase Providian Master Trust from Providian Financial for $2.9 billion in cash (financial services); and Publicis Groupe, which will buy Bcom3 for $2.4 billion in stock and debt (advertising & media).

Only 13 out of 49 industries reported increased activity over last quarter. The industries showing the biggest increases in quarter-over-quarter activity for the period were brokerage; investment and management consulting; office equipment and computer hardware; and industrial and farm equipment and machinery.

The brokerage, investment and management consulting industry reported 249 announced deals in the first quarter 2002 versus 123 in fourth-quarter 2001; the office equipment and computer hardware industry reported 29 transactions in first-quarter 2002 versus 15 transactions in fourth-quarter 2001; and the industrial and farm equipment and machinery industry has recorded 37 transactions in the first-quarter 2002 compared to 24 transactions in fourth-quarter 2001.